Caterpillar (CAT1) SWOT Analysis / TOWS Matrix / MBA Resources
Constr. & Agric. Machinery
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Caterpillar (Germany)
Based on various researches at Oak Spring University , Caterpillar is operating in a macro-environment that has been destablized by – increasing household debt because of falling income levels, technology disruption, challanges to central banks by blockchain based private currencies, increasing government debt because of Covid-19 spendings, competitive advantages are harder to sustain because of technology dispersion, supply chains are disrupted by pandemic , digital marketing is dominated by two big players Facebook and Google,
central banks are concerned over increasing inflation, wage bills are increasing, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Caterpillar can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Caterpillar, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Caterpillar operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Caterpillar can be done for the following purposes –
1. Strategic planning of Caterpillar
2. Improving business portfolio management of Caterpillar
3. Assessing feasibility of the new initiative in Germany
4. Making a Constr. & Agric. Machinery sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Caterpillar
Strengths of Caterpillar | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Caterpillar are -
Operational resilience
– The operational resilience strategy of Caterpillar comprises – understanding the underlying the factors in the Constr. & Agric. Machinery industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Effective Research and Development (R&D)
– Caterpillar has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Caterpillar staying ahead in the Constr. & Agric. Machinery industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Training and development
– Caterpillar has one of the best training and development program in Capital Goods industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Cross disciplinary teams
– Horizontal connected teams at the Caterpillar are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Innovation driven organization
– Caterpillar is one of the most innovative firm in Constr. & Agric. Machinery sector.
Digital Transformation in Constr. & Agric. Machinery industry
- digital transformation varies from industry to industry. For Caterpillar digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Caterpillar has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Organizational Resilience of Caterpillar
– The covid-19 pandemic has put organizational resilience at the centre of everthing Caterpillar does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Learning organization
- Caterpillar is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Caterpillar is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Caterpillar emphasize – knowledge, initiative, and innovation.
Successful track record of launching new products
– Caterpillar has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Caterpillar has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
High brand equity
– Caterpillar has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Caterpillar to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Strong track record of project management in the Constr. & Agric. Machinery industry
– Caterpillar is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Low bargaining power of suppliers
– Suppliers of Caterpillar in the Capital Goods sector have low bargaining power. Caterpillar has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Caterpillar to manage not only supply disruptions but also source products at highly competitive prices.
Weaknesses of Caterpillar | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Caterpillar are -
High dependence on Caterpillar ‘s star products
– The top 2 products and services of Caterpillar still accounts for major business revenue. This dependence on star products in Constr. & Agric. Machinery industry has resulted into insufficient focus on developing new products, even though Caterpillar has relatively successful track record of launching new products.
No frontier risks strategy
– From the 10K / annual statement of Caterpillar, it seems that company is thinking out the frontier risks that can impact Constr. & Agric. Machinery industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Lack of clear differentiation of Caterpillar products
– To increase the profitability and margins on the products, Caterpillar needs to provide more differentiated products than what it is currently offering in the marketplace.
Products dominated business model
– Even though Caterpillar has some of the most successful models in the Constr. & Agric. Machinery industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Caterpillar should strive to include more intangible value offerings along with its core products and services.
Aligning sales with marketing
– From the outside it seems that Caterpillar needs to have more collaboration between its sales team and marketing team. Sales professionals in the Constr. & Agric. Machinery industry have deep experience in developing customer relationships. Marketing department at Caterpillar can leverage the sales team experience to cultivate customer relationships as Caterpillar is planning to shift buying processes online.
Increasing silos among functional specialists
– The organizational structure of Caterpillar is dominated by functional specialists. It is not different from other players in the Constr. & Agric. Machinery industry, but Caterpillar needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Caterpillar to focus more on services in the Constr. & Agric. Machinery industry rather than just following the product oriented approach.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Caterpillar supply chain. Even after few cautionary changes, Caterpillar is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Caterpillar vulnerable to further global disruptions in South East Asia.
Workers concerns about automation
– As automation is fast increasing in the Constr. & Agric. Machinery industry, Caterpillar needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Compensation and incentives
– The revenue per employee of Caterpillar is just above the Constr. & Agric. Machinery industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Low market penetration in new markets
– Outside its home market of Germany, Caterpillar needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Capital Spending Reduction
– Even during the low interest decade, Caterpillar has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Constr. & Agric. Machinery industry using digital technology.
Caterpillar Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Caterpillar are -
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Caterpillar can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Buying journey improvements
– Caterpillar can improve the customer journey of consumers in the Constr. & Agric. Machinery industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Caterpillar can use these opportunities to build new business models that can help the communities that Caterpillar operates in. Secondly it can use opportunities from government spending in Constr. & Agric. Machinery sector.
Better consumer reach
– The expansion of the 5G network will help Caterpillar to increase its market reach. Caterpillar will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Using analytics as competitive advantage
– Caterpillar has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Constr. & Agric. Machinery sector. This continuous investment in analytics has enabled Caterpillar to build a competitive advantage using analytics. The analytics driven competitive advantage can help Caterpillar to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Caterpillar can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Learning at scale
– Online learning technologies has now opened space for Caterpillar to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Constr. & Agric. Machinery industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Caterpillar can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Caterpillar can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Loyalty marketing
– Caterpillar has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Caterpillar to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Caterpillar to hire the very best people irrespective of their geographical location.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Caterpillar in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Constr. & Agric. Machinery industry, and it will provide faster access to the consumers.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Constr. & Agric. Machinery industry, but it has also influenced the consumer preferences. Caterpillar can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Developing new processes and practices
– Caterpillar can develop new processes and procedures in Constr. & Agric. Machinery industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Threats Caterpillar External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Caterpillar are -
Increasing wage structure of Caterpillar
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Caterpillar.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Caterpillar.
Shortening product life cycle
– it is one of the major threat that Caterpillar is facing in Constr. & Agric. Machinery sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Caterpillar will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Caterpillar can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Caterpillar prominent markets.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Constr. & Agric. Machinery industry are lowering. It can presents Caterpillar with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Constr. & Agric. Machinery sector.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Caterpillar in the Constr. & Agric. Machinery sector and impact the bottomline of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Caterpillar may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Constr. & Agric. Machinery sector.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Caterpillar needs to understand the core reasons impacting the Constr. & Agric. Machinery industry. This will help it in building a better workplace.
Stagnating economy with rate increase
– Caterpillar can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Constr. & Agric. Machinery industry.
High dependence on third party suppliers
– Caterpillar high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Regulatory challenges
– Caterpillar needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Constr. & Agric. Machinery industry regulations.
Weighted SWOT Analysis of Caterpillar Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Caterpillar needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of Caterpillar is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of Caterpillar is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Caterpillar to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Caterpillar needs to make to build a sustainable competitive advantage.
